Center for American Progress

Declaring the Job Loss Recovery Over Doesn’t Make it So




Politicians would like to end their term on a high note. Hence, administration representatives and Congressional leaders would like to see the persistently weak labor market disappear. Absent real strong job growth, they have opted for the second best thing: defining away the problem. By simply declaring that any employment growth, regardless of how measly in historical comparison, equals victory over the "job loss" recovery, policymakers no longer have to worry about low employment, wage, and income growth.

In February 2003, President Bush’s Council of Economic Advisors estimated that the economy would create about 306,000 new jobs per month between June 2003 and the end of 2004. Treasury Secretary John Snow changed this forecast in October to about 200,000 jobs per month. And the White House declared in December that President Bush’s tax cuts are working because the economy added an average of 82,000 in the past four months. In line with this view, House Majority Leader Tom DeLay (R-TX) was quoted in December saying that he saw "no reason" to extend unemployment benefits further. By moving the goal posts closer, victory is achieved much more easily.

The labor market is growing again, albeit at an anemic rate. For the past five months, a total of less than 300,000 new jobs were created, including 1,000 for December as the Bureau of Labor Statistics reported today. This is obviously very slow growth – it does not even keep pace with population growth – and it began late in the recovery – almost two years after the recession ended.

The danger in turning a blind eye to the struggling labor market lies in inaction to help those, who have not yet gotten a job. By historical standards, the labor market is effectively 8.4 million jobs short. Wage growth has been about half of what it has traditionally been in a recovery, as has been the growth of weekly earnings. With the labor market struggling, the average length of unemployment – 19.6 weeks – and the share of the long-term unemployment are still close to their highest level in 20 years.

Given typical employment growth rates in the first 25 months of a recovery, about 300,000 jobs per month should be created and the share of the long-term unemployed should be 13.5% of the unemployed, instead of its actual 22.3%. Thus, typically the need for extended unemployment benefits at this stage in a recovery is significantly less. However, as we have learned, this recovery is not typical, and as today’s numbers show, the need for extended unemployment benefits is still high.

By defining the problem out of existence, policymakers do not have to address it. In this world of glossed over problems, Tom Delay’s comment that he sees "no reason" to extend unemployment benefits and the White House’s silence on this issue make sense. In the real world, where people are on average unemployed for more than four months and where job growth has come to a halt, they don’t. Workers and the economy deserve and need the honesty to admit that the labor market is still weak. Then, policy can be designed to address the problem, thus also stabilizing the recovery.

Congress did not extend benefits before its recess in December, thus, as of December 21, 2003, the extended unemployment benefits program is gradually phased out as the long-term unemployed are exhausting their benefits. The Center on Budget and Policy Priorities estimates that 80,000 to 90,000 unemployed become ineligible for unemployment benefits every week. However, just because politicians would like to see it go away, the problem of long-term unemployment has not disappeared yet. In December, 22.3% of the unemployed were out of a job for more than 26 weeks.

And this is not counting the large number of people who have given up looking, many of whom probably never qualified for unemployment benefits in the first place. If those who left the weak labor market were included in counts of the labor force, the unemployment rate would have been 7.1% instead of 5.9% in November, the Economic Policy Institute estimates. Consequently, the number of the long-term unemployed, if not their share of the unemployed, would be higher, too.

Policymakers who favor extending unemployment benefits to the long-term unemployed not only face economic realities, they are also implicitly proposing to stabilize the economy. Unemployment benefits constitute what economists consider an "automatic stabilizer" for the economy. The government pays out more in benefits when the economy is weak, thereby increasing demand, when it is needed, and vice versa. Thus, extending unemployment benefits would help to raise consumer demand at a time when it shows signs of slowing down. In September and October, consumer spending declined after showing solid gains since early in 2003.

The politics of denial and redefinition are harmful to the unemployed and they do not serve the economy well. Extending unemployment benefits for the long-term unemployed is the least policymakers can do to mitigate the continued fallout from the "job loss" recovery. This will also have the beneficial side effect to support a labor market and strengthen an economy that are still trying to find their footholds.

  • Share of Long-Term Unemployed relative to All Unemployed, 1948 to 2003
    Long-term unemployment is typically measured as the share of people unemployed for more than 26 weeks out of all unemployed. Long-term unemployment spiked in the early 1980s, and it reached similarly high levels in 2003. By December 2003, 22.3% of the unemployed had been unemployed for more than half a year.
    Source: Bureau of Labor Statistics, Employment Situation.

Dr. Christian Weller is a senior economist at the Center for American Progress.




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Christian E. Weller

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